Only Executives Get Pay Raise Due to High Profits

Workers at Caterpillar have gone on strike as they try to negotiate a new union contract. Despite making record profits last year, and being on pace to break that record again this year, the company is insisting on a long pay freeze for all workers — but not the executives, of course.

Now, in what has become a test case in American labor relations, Caterpillar is trying to pioneer new territory, seeking steep concessions from its workers even when business is booming.

Despite earning a record $4.9 billion profit last year and projecting even better results for 2012, the company is insisting on a six-year wage freeze and a pension freeze for most of the 780 production workers at its factory here. Caterpillar says it needs to keep its labor costs down to ensure its future competitiveness…

Caterpillar, which has significantly raised its executives’ compensation because of its strong profits, defended its demands, saying many unionized workers were paid well above market rates.

The company made almost $1.6 billion in the first quarter of this year. The CEO of the company, meanwhile, has gotten a huge 60% pay raise to nearly $17 million a year. Other top executives got similar raises. But of course, anyone who thinks the workers should be making more money — or even the same money — during times of record profit is clearly a communist engaged in class warfare.

First, I think it’s absolutely OK for the workers to strike if they think they’re getting a raw deal. I’d go so far as to say that’s their right. (without getting into federal labor laws regarding all this).

On the other hand, I can see the position of a business owner. If you’ve got literally tens of thousands of workers waiting for a job, and if anyone quits you can fill that position with an equivalent worker for not much trouble, why do you raise wages?

Don’t get me wrong, I understand the Henry Ford policy argument about paying your workers a living wage so that they can support demand for your own products, but at the end of the day wages are controlled primarily by the ability of the company to go out and find someone who is willing to do the work for a given wage. If lots of people who can work as efficiently are willing to do the work for less, why would they pay more?

zippythepinhead

“anyone who thinks the workers should be making more money … is clearly a communist engaged in class warfare”

Gee, Ed, I really thought you’d be a little more sympathetic toward workers.

On this topic, brilliant interview by Jon Stewart of Joseph Stiglitz on “The Price of Inequality”:

That argument does sort of work to a degree assuming a free market of labour. But the argument should also work for executives. Surely they could find a willing CEO that would work for $15 million instead of $17 million.

But of course, the wages/executive bonuses don’t follow the free market, the people that decide the CEO’s and the executive bonuses are in the same social circle as the CEO and executives, whereas the workers generally aren’t, so a bit of class solidarity applies.

I’d also contest the characterisation that Caterpillar workers are interchangeable with people willing to fill the positions. Surely, the skill and dedication of the workers has counted for some part of the success of the company.

Chiroptera

Ben P, #1:If you’ve got literally tens of thousands of workers waiting for a job, and if anyone quits you can fill that position with an equivalent worker for not much trouble, why do you raise wages?

You do it because it’s the right thing to do.

This isn’t snark; I’ve known business owners who have done exactly that. There are people who believe that there is a point at which they are making so much money that it’s time to share the wealth a bit, and for no other reason than it’s the decent thing to do.

‘Course these are small businesses; I understand that people who run very large corporations are operating under a different “logic.”

jesse

@Ashleymoore —

I’d add to that the concept that money is decreasingly useful the more of it you have. Workers generally need the job to survive; an exec does not. If I make $15 million in one year I never really have to work again in my life if I don’t want; the interest alone (even at 1%) would support a rather nice lifestyle.

So the whole free market for labor is skewed because the people looking for jobs at the top don’t really need the job. You can ee what that does to the bidding for salaries.

But the other issue is the class solidarity. One thing that I always thought was interesting — and this shows how arbitrary, and culturally determined some economic values are — is the assumption that to hire a talented exec you need to offer a lot. OK, but that never seems to apply to workers or people who do socially useful things like work for the government, unless they carry guns. That is, nobody ever says, “we should pay cops less” whereas teachers always get the shaft. But if we apply the same logic as we do to executives, teachers and garbage men should start at $100K per yer and we should all be happy to pay it, and corporate execs should get much less.

But the automatic assumption is that if you do government work you must be less talented because “governments don’t have to show a profit” (which at the state level and below is not quite the case; they have to balance budgets and weigh that against how much you can raise taxes).

What I want to know is why the CEO gets credit for raising profits, when the guy on the line is the one who actually did the work.

Gregory in Seattle

Labor issues in Seattle have come to a head again, this time with the Teamsters striking against the region’s waste collection monopoly. At issue is the fact that the drivers and collectors for recycling and yard waste get paid $9 an hour less than the drivers and collectors of trash, despite doing essentially identical work.

The anti-union sentiment in the article’s comment section is depressing. I grew up in a union home; I was raised on the MANY positive contributions unions have made to society. Organized labor has faded in the last two or three decades, but if they do not come back, we will return to days of wage slavery and the many other abuses that used to be common.

@Ben P #1 – The idea of disposable employees was one of the first targets of the early organized labor movement in the 1870s and ’80s. Production workers work in a factory, but they are not machines to be used up and discarded when they become troublesome. Anyway, most of those positions are skilled labor: it would take a lot of time and expense to bring new workers up to the productivity level as the current workers, during which time the factory will be producing fewer products. Management is being extremely short sighted, as it will end up costing far more to hire and train new workers than it would be to give a reasonable raise in pay to existing workers.

Executives get raises and workers get a 6 year wage freeze? During record profits? Man, that is the biggest steaming pile of don’t-get-it I’ve seen in a long time.

oranje

@ashleymoore:

Heck, I have some experience running a company, and I’ll do it for $2 million a year! I assume the CEO of Caterpillar will now step down from shareholder pressure that someone is willing to correct this inefficiency in their economy.

http://rationaldreaming.com tacitus

Has it ever occurred to executives that the success of their company could well be due to the fact that their workers are “paid at well above the market rate?”

Well paid workers tend to be better motivated, better qualified, more experienced, and much less likely to jump ship in search of a better deal.

American industry often bemoans the fact that there are not enough well qualified workers for them to hire, but then what’s the point in becoming well qualified in the first place if you’re not going to get rewarded with a decent wage?

http://www.facebook.com/Margie.Redmon margieredmon

As an employer, I pay higher than the “going rate” for my employees and they are also on salary, where most in the same business are hourly. In return, they bring their brains to work with them every day, they work hard. If they encounter a problem, they look for ways to solve it, often without even mentioning it. They don’t “clock watch”, even though they are salaried, because they WANT all of us to be successful and they can look at their work at the end of the day with pride. (I am also a big fan of expressing my appreciation for all they do.)

Michael Heath

Ed writes:

of course, anyone who thinks the workers should be making more money — or even the same money — during times of record profit is clearly a communist engaged in class warfare.

This is a really bad conclusion, based on the defective framing your premises. Regardless of our positions, we should at least make an effort to craft a compelling argument beyond what ideologues are predisposed to wanting to hear. You’re better than this Ed; here you’re succumbing to the type of liberal position from the 50s/60s/70s that greatly contributed to the U.S. becoming less competitive globally, with conservatives contributing a significant amount of damage in related areas as well.

The executives have a global responsibility for Caterpillar. Negotiations on wages being reported here is for one domestic plant on Joliet, Ill. In order to determine the fairness of the what management is proposing, we need to determine how competitive this one plant is with what’s being offered relative to other opportunities this plant has for this type of work and what the market will bear.

Say Caterpillar conceded to this one plant – just like many OEMs did over the decades prior to mid-1990s, they could be effectively subsidizing losses they don’t need to take with gains made in other factories. That is the opposite of what executives are chartered to do with their owners’ resources. I also know what often happens to such plants since I lived it for nine years. At some point they’re either closed because they’re not competitive or their demand and the plant is sold to a subcontractor who slowly moves that business to its viable operations on a timeline agreed to with the OEM (in this case Caterpillar). That makes the sub the bad guy when the root cause for the shutdown was piss-poor management by the OEM’s management which allowed a factory to become unviable relative to other factories, including domestic ones.

And to be vividly clear, I’m not defending Caterpillar’s management here, I’m instead disparaging the quality of Ed’s post. This NYTs report is so piss-poor it doesn’t provide even close to the sufficient set of premises needed to draw a cogent conclusion. From a human nature standpoint, of course I’m disappointed Caterpillar is using two-tiers and seeking to freeze wages on anyone; but I don’t have the data necessary to draw a conclusion on what other options are available to maintain the viability of their Joliet operation; I do know subsidizing it if needed only delays its demise. I personally saw plants which grew their operations rapidly and plants which sunk for not making tough decisions in a timely manner; where I always prefer strategies which allow operations to maximally flourish.

keithb

Anyone who thinks that it is easy to replace these workers need only watch a few episodes of “Undercover Boss”.

jws1

@#13: Cool story, bro. Now freeze the wages of all executives at the same time in the same company, in the name of protecting the resources of owners.

What’s that?

/crickets, crickets, crickets

slc1

Re Heath @ #13

As usual, Heath is unable to see the forest for the trees. His argument makes perfect sense, except that it fails to address Mr. Brayton’s point, namely that the management of Caterpillar is raising the compensation of management while demanding that hourly employees take a hit. Apparently, Heath doesn’t think that compensation of management effects competitiveness.

unbound

The funny part is that Caterpillar isn’t the first…they are just being the most blatant about it. We’ve been doing it to our tech workers for about a decade now in my company…not a complete freeze, but massive slow down on raises. We are also a company that has done exceptionally well during this entire time.

The kicker? We struggle finding new resources as the business continues to grow. Why do we struggle? Because our salaries are merely average to low. So much for the tens of thousands waiting to take anyone’s job…and is likely BS from the Caterpillar exec as well. Of course, the senior executives in my company are also raking in a good increase each and every year.

Want to know another dirty little secret? The HR at my company talks to HR at other companies, including our competitors, to fix the salaries so that they don’t pick off each others workers…and makes sure all the companies can keep holding on to their increasing profits.

This is just a taste as to why arguments like Ben P’s (#1) don’t really work in reality.

d cwilson

Ben P, @1:

If you’ve got literally tens of thousands of workers waiting for a job, and if anyone quits you can fill that position with an equivalent worker for not much trouble, why do you raise wages?

I think the false premise here is that there are thousands of “equivalent workers” waiting outside the gate to be inserted into job slots as if you were just replacing a broken fan belt. Workers are not dispossable cogs that can be traded out on a whim. Training takes time. Even longer if you have to retrain an entire shift.

But this mentality seems to greatly plague our corporate culture. Executives no longer see workers as people with families to support. Instead, they’re just another resource to be purchased at the lowest cost possible. If there is class warfare in this country, it’s the result of an ever-widenly gulf between the classes. The working class and executive class don’t just live in different neighborhoods any more. They inhabit completely different worlds.

Who Cares

@Ben P (#1):

It is a myth that Ford paid his workers more so they could eventually purchase a car or have a living wage.

The reason he paid more was that the works was so stupid that people left weeks after they were trained up. Ford decided to pay his workers more since it was cheaper then having to continually shoulder the costs of training new people and the shutdown time of lines when people had enough (so in the end his company was more profitable then before the pay rise).

Michael Heath

tacitus writes:

Has it ever occurred to executives that the success of their company could well be due to the fact that their workers are “paid at well above the market rate?”

Well paid workers tend to be better motivated, better qualified, more experienced, and much less likely to jump ship in search of a better deal.

World-class operations absolutely establish and monitor metrics between factories and can pareto down success and failure factors. The reality is that there are areas where one can pay less in wages for not just equivalent motivated talent, but superior motivated talent. For example, I participated in decisions that showed some lower-paid German workers far excelling workers in England and some in Italy.

I also worked with two U.S. factories, one had predominately black U.S. workers who were paid less than other but kicked their ass performance-wise. The second was located in a white Red State area though not the deep south. (Because I use my real name this as far as I’ll go with specifics.).

One approach which I find to be a win/win is to tie pay to plant performance. With the same objectives and bonus scale from the lowliest worker to the head of the plant, usually this is done by profit-sharing. In my previous U.S. example this didn’t work so well because the Red State plant, which met the scenario in my first post, bloated and overpaid, sold to a subcontractor because their costs weren’t competitive, and then had to actually compete for new business given they were now a subcontractor, was so culturally anti-work in spite of their high pay they eventually died out since they couldn’t win new business after being sold to a subcontractor.

leftwingfox

If lots of people who can work as efficiently are willing to do the work for less, why would they pay more?

Because people aren’t iron ingots. As long as labor is treated as a mineral resource, then quality of life or participation in the economy as a whole are going to be treated as ay other externality to be minimized.

The free market is amoral: it selects for the most profitable behaviours. If ethical behaviour is profitable, companies will do that. If unethical behaviour is most profitable, then that is encouraged. The most dangerous part of free market philosophy is the intellectual attempts to redefine morality to align with profitability.

interrobang

They just did this exact same thing in my hometown. They pushed for massive pay cuts for the employees, claimed they weren’t going to close the plant, then locked the workers out and closed the plant. The Global Male‘s framing here is a big dishonest and right-wing, but the gist is there, anyway. I predict more of the same, actually.

I must admit that part of me thinks that this latest wave of American industry getting hit by the “ratchet down your expectations or we’re moving to the US to Mexico” thing is quite amusing, given that it’s been happening to us consistently since the US strong-armed us into NAFTA (thanks in part to a toady Conservative government). In a sense, all the bullshit about how NAFTA would be good for Canada was true — a lot of local, small businesses sprung up to meet local demand after the large, American-based transnationals packed up and moved to ostensibly cheaper pastures. (I wonder if they’ve ever calculated the cost of having to pay for health benefits, and/or compensate for those places’ shitty public education systems.)

Jordan Genso

I can see Michael Heath’s point, and it is valid. It’s clear that some Caterpillar workers would be justified in demanding better wages, but it’s not clear if the plant workers in question qualify. But only the management would know which factories are overperforming relative to the others, and therefore are more responsible for the profits. But since they’re clearly not providing that information to the workers who should be paid more, I don’t fault the ones involved in the story for fighting for better pay.

I think the larger point though is that this is an example of why businesses and CEOs should be taxed. The corporation and top executives get to profit from the work being done by underpaid employees (underpaid relative to how much value that individual worker creates for the company, not necessarily underpaid relative to other wages at other companies). In effect, the workers are “subsidizing” the management.

So corporate taxes and a progressive tax system can work to counteract that “subsidy”. By placing a larger tax burden on the companies and executives (and therefore less tax burden on the workers), the companies and executives “subsidize” the workers’ tax liability.

I don’t think individual factories fighting for better pay is the optimal solution to the problem. The solution is to mitigate the inequity by lowering the workers’ taxes and raising the taxes on the executives and corporation.

There is no reason to expect a corporation to pay their employees more than they need to, even if those employees are worth it. Some corporations do take pride in doing the right thing by paying employees more, but it is a voluntary action that does run counter to capitalism. So within the capitalist system, the government is the only entity that can correct that inefficiency (I doubt that anyone here would argue that the pay discrepancy is efficient for the overall economy).

Michael Heath

slc1 writes:

As usual, Heath is unable to see the forest for the trees. His argument makes perfect sense, except that it fails to address Mr. Brayton’s point, namely that the management of Caterpillar is raising the compensation of management while demanding that hourly employees take a hit. Apparently, Heath doesn’t think that compensation of management effects competitiveness.

That’s some heavy duty projection there slc1. But your facts are wrong since this isn’t about Caterpillar’s “workers”, but instead a subset of their workers at one of the plants. Because Caterpillar has multiple plants and options beyond their current sets of brick and mortar, that factory will be judged compared to other options. That’s very different to how their executives are judged, which is based on the performance of the entire company. Newsflash slc1 – there is competition between factories within a company and options the company considers outside their current control.

Michael Heath

d cwilson writes:

But this mentality seems to greatly plague our corporate culture. Executives no longer see workers as people with families to support. Instead, they’re just another resource to be purchased at the lowest cost possible.

Because Purchasing reported into me and our organizational design had even middle managers like me intimate with our customers, I was able to work with hundreds of companies in the tech sector and those companies which served that supply chain. I experienced the exact opposite problem, that management, usually middle management, generally failed to maintain a viable headcount given continuous improvement projects which increased productivity.

Management should have been constantly filtering out the chaff and perhaps doing small lay-offs when times were good which allowed people to secure jobs in companies which were hiring in those good times. Instead the death watch for these people started, they just didn’t know it, where the trigger was an economic downturn. That made it difficult to impossible for those who were laid-off to find a job since nearly everyone was laying off or not hiring. So delaying the inevitable was hardly the effectively charitable thing to do.

Instead what would happen would be an economic downturn with lay-offs meant to satisfy Wall Street, which meant they were an over-reaction. Companies would then suffer when upturns happened because they’d cut too many and failed to exploit the opportunities that up-turn presented to them – that’s exactly one primary reason why our GDP is so anemic now. All because managers in general do not like lay-offs or firing people.

Ford’s response to middle managements anathema to keeping themselves properly staffed was to cut a certain percentage from each group, that being the weakest, no matter what. I find that to be the machete approach when a scalpel should be the preferred tool; especially since it hurt groups managed by great managers that always keep themselves properly staffed rather than getting bloated in non -bad times.

slc1

Re Michael Heath @ #24

How about the management of this particular plant? Did they also get a compensation freeze or, like the management in the rest of the company, did they get big raises? Inquiring minds want to know.

Michael Heath

interrobang writes:

I must admit that part of me thinks that this latest wave of American industry getting hit by the “ratchet down your expectations or we’re moving to the US to Mexico” thing is quite amusing, given that it’s been happening to us consistently since the US strong-armed us into NAFTA (thanks in part to a toady Conservative government).

I’m sensitive to how liberal populists and many though a declining number of conservative populists despise NAFTA. And while they’re right it’s generated a net harm, they’re wrong on why it’s hurt the U.S. It hasn’t hurt us because it opened up new jobs in Mexico and Canada, but instead because the U.S. failed to adapt to a new paradigm given increased trade. We failed to adapt to a global economy which was seeing regionalization going on when it came to trade treaties and regulations; we failed to exploit those opportunities like W. Europe did with E. Europe and Japan, Taiwan, Singapore, and S. Korea did when it came to China, India, and Indonesia.

This failure by the U.S. to sufficiently adapt in order to not harm the U.S. labor market began at the very start of the Clinton Administration though I have no doubt a Republican administration would have been far worse. Robert Reich, Clinton’s Sec. of Labor and an authentic intellectual liberal, had it out with Bob Rubin, a classic example of the Democratic party’s new embrace of business. Rubin was Sec. of the Treasury.

The fight was about what to due with pending surpluses given H.W. Bush and the attendant Congress passing tax increases. Rubin argued to eradicate the deficit, Reich that we should use that surplus to transform the American workforce to better compete in this emerging regional/global economy. In hindsight Reich was of course right, the labor market in America had been declining for at least the past two recessions where the 2000s was the weakest decade for labor in our country’s history. W. Bush would have greatly helped us all if his legacy of debt was investing in education, labor, and infrastructure (including novel types) rather than the Iraq War.

What’s ironic about this is that even today many liberals will point to Clinton’s success turning a deficit into a surplus when in fact that was a massive strategic error, they should have invested in our economy for long-term growth. Of course this all occurred in a context where the Republicans had chosen Newt Gingrich as the de facto head of their party where the Republicans intent was and remains to do far worse harm than what Clinton and Rubin did; while also creating an environment that made it politically impossible for the best idea, that being Bob Reich’s, to win the day in Congress.

These lessons in the early-2000s was a primary motivation for me to follow liberal economists far more than other types.

http://www.pandasthumb.org Area Man

Want to know another dirty little secret? The HR at my company talks to HR at other companies, including our competitors, to fix the salaries so that they don’t pick off each others workers…

I’m pretty sure that’s illegal, or if it’s not, it should be because it’s a form of bid-rigging.

I agree with #5. It’s impossible to believe that the compensation of top executives actually reflects their productivity (does the CEO really produce as much wealth as 170 people getting paid $100,000 year? If so, he must be superhuman.) It rather reflects the quid pro quo of their social class. Workers have every right to be pissed when they see that sort of thing.

And it turns out that not only are there market failures that cause executives to be wildly overcompensated, but there’s anti-competitive behavior that prevents workers from being able to bargain their market wage. The ineluctable conclusion is that our “job creators” are parasites sucking wealth out of workers and capital.

Michael Heath

Jordan Genso:

I think the larger point though is that this is an example of why businesses and CEOs should be taxed. The corporation and top executives get to profit from the work being done by underpaid employees (underpaid relative to how much value that individual worker creates for the company, not necessarily underpaid relative to other wages at other companies). In effect, the workers are “subsidizing” the management.

Of course executives pay too little in taxes now, but let’s not advocate tax policies that makes it even harder to improve our labor market by increasing taxes on business. They do have other choices since the U.S. is not the only game in town, especially given the fact we can’t and shouldn’t compete on other cost factors considered during capital investment and operational location decisions, like low-wages.

Jordan Genso:

So corporate taxes and a progressive tax system can work to counteract that “subsidy”. By placing a larger tax burden on the companies and executives (and therefore less tax burden on the workers), the companies and executives “subsidize” the workers’ tax liability.

You argue as if these companies don’t have any choice but to operate here. That not only isn’t true, I personally participated in moving billions of dollars of business moved off-shore when local cost factors couldn’t compete with off-shore costs. As well as supporting the creation of new greenfield sites here in the U.S. which leveraged our advantages and generated billions of profits. So again, I get the desire by liberals to stick it to the man, but that only hurts our workers even more since we don’t operate in a vacuum. Tax individuals far more than we do now, especially the most well-off, but taxing businesses more when other costs factors don’t work in our favor is not helpful to the U.S. worker.

In general Jordan, like a lot of liberals who argue businesses should pay more in taxes, your entire argument ignores the reality that the U.S. is not the only game in town. Increasing taxes on capital or labor here in the U.S. only amplifies our weaknesses and makes it more difficult for us to exploit our advantages. And since executives are now more like global citizens, this doesn’t hurt them so much except the time away from home since they have the wherewithal to respond; it most certainly harms the U.S. labor force as we’ve seen since the opening of China and then NAFTA, India, and Eastern Europe.

Michael Heath

Area Man writes:

I agree with #5. It’s impossible to believe that the compensation of top executives actually reflects their productivity (does the CEO really produce as much wealth as 170 people getting paid $100,000 year? If so, he must be superhuman.) It rather reflects the quid pro quo of their social class. Workers have every right to be pissed when they see that sort of thing.

I agree with Ashelymoore’s entire post as well, and address this point relevant to your own:

That argument does sort of work to a degree assuming a free market of labour. But the argument should also work for executives. Surely they could find a willing CEO that would work for $15 million instead of $17 million.

But of course, the wages/executive bonuses don’t follow the free market, the people that decide the CEO’s and the executive bonuses are in the same social circle as the CEO and executives, whereas the workers generally aren’t, so a bit of class solidarity applies.

As an ex-middle manager and then an executive though never top management, I frequently saw executive pay in the stratospheric range at close range. Most of the time I found their pay was way below the return their decisions had on the profit and health of the company. No superhuman effort needed, the fact is they make decisions which can have an enormous impact on the wealth and prospects of the company. The pressure is enormous, the workload frequently unrelenting to the point of being soul-sucking. However I do agree with Ashleymoore’s point given how lucrative it is to also be a failing or even fired CEO. So while I don’t begrudge their pay for their successes, I have a real problem with their pay when they fail, which suggests the sort of in-club compensation ashleymoore suggests.

And then you have Wall Street compensation, which actually rewards people for short-term gains based on accounting trickery which threaten and damage the future prospects of the firm. That’s insane and clearly reveals how important regulation is to a thriving sort of capitalism.

http://www.pandasthumb.org Area Man

Heath,

I agree that the decision making of top execs can have a huge impact on a company’s profitability. The question, of course, is to what degree any differences in decision making ability are so large and predictable as to justify some execs getting tens or even hundreds of times the compensation of others. If this correlated even somewhat well with their abilities, we should never see massively paid CEOs making dumbshit decisions that ruin their companies. But in fact, as you correctly note, we see this all the time. We’re only 3-4 years past a massive financial crisis that proved, in the most spectacular fashion possible, that huge compensation is no guarantee that CEOs have any clue what they’re doing. And then they got golden parachutes just to prove the point further.

The bottom line is that top execs appear to squeeze as much money out of their firms as possible because, well, they can. When workers see this, they may as well figure that they too should squeeze as much money out of the firm because, well, they can. Yet in our business culture, it’s only the latter group who is denounced for being greedy and threatening the long-term health of their firms. The former group, meanwhile, is lauded for being “job creators” and for following their Friedmanian imperative to make as much money as possible without letting namby-pamby concerns about social utility get in their way.

Ben P

@Ben P #1 – The idea of disposable employees was one of the first targets of the early organized labor movement in the 1870s and ’80s. Production workers work in a factory, but they are not machines to be used up and discarded when they become troublesome.

I’ll be up front here, what I’m about to say is pretty assholish.

But you know what I call that position? salesmanship.

Of course unions wanted to spread the concept that workers are more than just units of labor, because that works to the unions advantage. If the unions can sell that, more power to them.

I think the false premise here is that there are thousands of “equivalent workers” waiting outside the gate to be inserted into job slots as if you were just replacing a broken fan belt. Workers are not dispossable cogs that can be traded out on a whim. Training takes time. Even longer if you have to retrain an entire shift.

That all depends what those workers are doing now doesn’t it?

I live and work in Arkansas, there is a lot of industry and agricultural industry here. I know many people and have friend that presently, or have in the past worked in factories.

I have a friend that spent several years working in an air conditioner factory. His job was to attach three bolts to every piece of metal as it came down the line. His training period was one day, and after that he was expected to spend no more than 10 seconds on each piece. If he was consistently over 10 seconds, he would have been fired.

Another friend works in a meat packing factory. His job is to take frozen chicken bags off the line and put them into boxes.

Yes, there is some training involved, particularly if an entire shift had to go at once. But the factories themselves are designed to a great extent to mechanize almost every job that used to be performed by someone operating a machine or using some skilled trade.

At a caterpillar factory I bet some of the jobs involve welding or wiring and might require skilled labor. But I bet a lot of others involve putting three bolts into holes and tightening them, or snapping plastic piece A into plastic Piece B. It is not a large investment to train someone if you have the people to do it, and a lot of these factories literally could replace much of their workforce on a rolling basis and lose minimal productivity.

Michael Heath

A general observation . . .

We can all point at how conservatives deny the reality of global warming and confidently speculate at least many are doing so because they don’t like the fact mitigation requires a more active government and dynamic regulatory government. As well as conceding this reality requires the need to better eradicate external negative costs in business sectors which fund Republican politicians, like coal and oil. Not to mention the need to tax carbon in order to eradicate taxpayers funding artificially low coal and oil prices.

I find it disheartening to see liberals continue to want to punish businesses with more taxes because they don’t like the way many businesses treat their employees. Where the inconvenient fact here is doing so harms the national interest where they deny the fact adding costs to labor and capital does impact business location decisions where we’re not the only game in town.

While I’m happy to see how so many Democrats with power have lost their zeal to take a management vs. labor approach and instead side with economists on how to grow the economy; it’s disheartening to see some liberals avoiding inconvenient facts in order to perpetuate their desire to punish those they perceive outside their tribe just to maintain the old paradigm between liberals and Republicans; who weren’t necessarily conservatives when this partisan war was waged decades ago. That’s sadly ironic since so many tech and other sectors which rely on intellectual capital are now Democrats or are open to voting or even being Democrats.

Liberals like to argue from a high moral horse and for the most part, they’ve earned that status. But those who argue against business in a way to seeks increase their taxes, as if this were still the late-1950s, are making just as compelling argument to those who are informed as AGW denialists arguing we don’t have to do nothin’.

Michael Heath

Area Man writes:

we should never see massively paid CEOs making dumbshit decisions that ruin their companies. But in fact, as you correctly note, we see this all the time. We’re only 3-4 years past a massive financial crisis that proved, in the most spectacular fashion possible, that huge compensation is no guarantee that CEOs have any clue what they’re doing. And then they got golden parachutes just to prove the point further.

I find Wall Street compensation so different from what corporations do that I don’t conflate the two. The only common element is that in both cases, stockholders suffer from Boards with far too much bias towards management rather than than stockholders. In the case of Wall Street we should remember they’re in somewhat new territory for them since many have only recently become public, wherein the past they were owned by partners who guided the firm towards profits that didn’t risk bringing the place down.

So to ashleymoore’s point, my corrective action for the defect she reports is the need for regulatory laws which insure management and the Boards are beholden to the owners of the firm (its stockholders), rather than the cushy relationship we now observe between boards and management.

Area Man writes:

The bottom line is that top execs appear to squeeze as much money out of their firms as possible because, well, they can. When workers see this, they may as well figure that they too should squeeze as much money out of the firm because, well, they can. Yet in our business culture, it’s only the latter group who is denounced for being greedy and threatening the long-term health of their firms. The former group, meanwhile, is lauded for being “job creators” and for following their Friedmanian imperative to make as much money as possible without letting namby-pamby concerns about social utility get in their way.

This is an excellent point and exactly why I noted I was not defending Caterpillar. I too am disgusted at how so many Americans applaud management using their business skills to maximize their income while screaming bloody murder when labor leverages collective bargaining (which I support) to do the very same thing. It’s hard for me to express my contempt for the Scott Walkers of the world in words.

My problem is that in the past labor too often strived for a win/lose bargain, as did management. Government has sided with one side or the other; what I love about the Democrats since the Clinton era is they’re ignoring that paradigm and now working for optimal results by way of what economists advise. However the problem with this approach is that it makes labor even more vulnerable to the truly contemptible set of conservatives which now run the Republican party. This redirection by Democrats has had an amplifying feedback effect on Republicans furthering their harm against labor right at the moment Democrats are now ready and capable to work in the best interests of the country, just like nearly all past liberal/moderate Republicans used to do [who are now extinct].

Jordan Genso

Michael Heath

…let’s not advocate tax policies that makes it even harder to improve our labor market by increasing taxes on business. They do have other choices since the U.S. is not the only game in town…

I agree, and my mistake was not being more precise in what I was suggesting. I’m not advocating “sticking it to the man”. I do believe that the effective tax rate on businesses is lower here than many other countries, and so there is some room to get more tax revenue from them without motivating them too strongly to leave. Rather than raising tax rates on business, the increased revenue should come from closing inefficient loopholes.

But by adjusting the tax code, we can also make the country more attractive to businesses. By lowering taxes for Americans that will use the additional money to drive up demand (and offsetting those tax cuts with the additional revenue from closing the loopholes), we can improve our economic condition and decrease the risk businesses face when they invest here.

You argue as if these companies don’t have any choice but to operate here.

I recognize they can move somewhere else, but I’d prefer that our government was stronger in standing up to that sort of threat. We need them, but they need us too.

It’s a very difficult situation in which to find balance, and I don’t pretend to know where that balance is. We will always be “hostage” to their threat of off-shoring, and they’ll always be “hostage” to our threat of increased regulations/tariffs/taxes/etc. But my perception is that companies are currently (and for some time now) moving jobs overseas even while they pay incredibly low taxes, so they’re already choosing other countries even when we try to provide a pro-corporate environment.

Jordan Genso

Michael Heath

it’s disheartening to see some liberals avoiding inconvenient facts in order to perpetuate their desire to punish those they perceive outside their tribe

I’m honest when I’m saying that I’m not motivated by trying to “punish” “them”, but instead trying to achieve a more efficient and sustainable economy. Someone has to pay taxes, and so tax policy should be designed around what is best for the long term.

The status quo is not sustainable. Executive pay far exceeding that of the average worker only results in an increasingly skewed wealth distribution, and at some point, that is no longer sustainable. The wealthy gaining a larger and larger percentage of the total wealth can not continue forever. Sure, the top 1% can control 30% of the wealth and society still exists, but what if they have 60%? or 90%? At what point does the system collapse?

There’s no question that those at the top are going to continue fighting for more wealth. It’s a part of human nature. But by fighting back, implementing modest policies that slow the rate at which the 1%’s share of the pie grows, and implementing policies that increase the size of the pie at a faster rate, we are looking to the long term.

Michael, I know this is now slightly off topic, but how would you suggest we achieve a more sustainable distribution of wealth? Or do you disagree with my premise that the path we are on is not sustainable? Or do you disagree that lower and lower business taxes adds to that unsustainability?

ttch

IIRC, when Jack Smith retired from the role of GM’s president in the late 1990’s, he got a nice fat multi-million dollar pension. A year or so later the Board of Directors added several million more. Some wag asked, “What did he do, threaten to retire from another company?”

Michael Heath

Jordan Genso writes:

I do believe that the effective tax rate on businesses is lower here than many other countries, and so there is some room to get more tax revenue from them without motivating them too strongly to leave.

So if country X has a 40% wage-cost advantage over us where our taxes are 15% less than their’s, we can raise our taxes and not lose out on future investments?

For example:

Cost to build a widget, in USD:

Country X

Cost of materials 40 cents

Cost of labor 40 cents

Taxes – 18 cents

Total – 98 cents

USA

Cost of materials 35 cents

Cost of labor 56 cents

Cost of taxes – 15 cents (rounded)

Total – $1.06

This is an example of why I harp on not being able to evaluate the impact of effective tax rates between countries in a vacuum, but instead must consider all costs when setting optimal tax policies. While this is a highly simplified example, it’s disparities like this which has transferred trillions of dollars of investment capital elsewhere.

And while it’s been years since I participated in this sort of exercise for real, these are real from a percentage perspective on some products though most of the product I evaluated cost hundreds to a few thousands of dollars each where there were also some other factors considered as well. However all four of these are major cost components for most manufactured products.

Michael, I know this is now slightly off topic, but how would you suggest we achieve a more sustainable distribution of wealth? Or do you disagree with my premise that the path we are on is not sustainable? Or do you disagree that lower and lower business taxes adds to that unsustainability?

Re your first question:

For the past couple of decades we’ve seriously eroded our investment commitments at all levels of government. We can’t completely see it because taxes haven’t gone down as much as the physical decline in these investments. So why is this? The reality is that overly generous pensions were dispensed years ago coupled to rising healthcare costs pensioned retirees and current government employees get.

So we must solve healthcare and to a smaller degree pension costs. This is exactly what Obama discovered soon after becoming president and started harping on healthcare (the pension problem is more of a state issue) as the primary challenge to solving the debt issue. We don’t see it because the feds and state government breakout their budgets by department rather than how the money’s being spent. But when we consider the healthcare costs of teachers, federal workers, the military, and retirees on Medicare and Medicaid, it comes out to governments paying about 40% of all the U.S.’s healthcare costs. That makes for less available funds to spend on roads and physical plants for schools and other investments which create a better matched labor market and demand for their labor. We must also seriously invest in areas which give us the ability to grow our way back to a strong labor market, which requires a significant investment in a lot of areas, including the trades and college, in spite of the fact an increasing amount of taxpayer money is going towards healthcare.

Third the richest don’t pay enough in taxes, which is a primary reason we don’t have the necessary government funds to invest in things that creates labor market growth. But we should be taxing consumption far more and in a progressive way, like luxury taxes on certain items to fund the investments mentioned earlier. The global economy has made it more difficult for the U.S. to tax income and wealth and enjoy increased capital investment though I support the top marginal rate being increased back to about 40% and support estate taxes. There are ways to tax some capital without reducing our capability of attracting capital, like changing what’s a capital gain so money managers have to claim their income is income instead of capital gains, and as mentioned earlier, taxing estates.

Businesses only contribute about 9% of total revenues to the federal government, yet essentially control legislation. This is another reason I think we’d be far better off taxing them only for direct services (usually collected in property taxes) and fees. They’d be far less motivated to control our legislature though this wouldn’t lose them altogether (regulations). We need to take our government back so policies which start supporting people rather than corporations are neccesary. For example, I’m in strong support of public financing in elections.

These are just a few items.

Michael Heath

ttch writes:

IIRC, when Jack Smith retired from the role of GM’s president in the late 1990′s, he got a nice fat multi-million dollar pension. A year or so later the Board of Directors added several million more. Some wag asked, “What did he do, threaten to retire from another company?”

And who got hurt most by this waste of money? The shareholders [owners]; which is exactly why I argued previously for regulatory reform that forces Boards to represent owners, not management.

The ethnic group I worked with which best matched American style capitalism was ethnic Chinese, whether they were located in Taiwan, Malyasia, Singapore, Hong Kong, or China. Primarily because they were also risk-takers, which is a primary reason America is so rich now.

And while the Chinese government is run by the Communist party, they are executing a top down technocratic form of capitalism, quite well actually though they suffer from far too much corruption when it comes to government-funded investment.

drivinganalytical

Chiroptera #6 – Here’s an extract from a very heartwarming story that you might relate to (from Australia, February this year):

Bus operator Ken Grenda would win the award of Australia’s most generous boss hands down after divvying up $15 million to his staff as a reward for their hard work and loyalty.

The 1800 workers at the Victorian family-owned bus company Grenda thought their banks had made an error when they discovered thousands of dollars in their accounts, the Herald Sun said.

They received an average $8500 – with some bonuses as high as $30,000 – with the sale of the business after 66 years.

Mr Grenda, the major shareholder, played down the best boss moniker, instead paying tribute to his staff.

“A business is only as good as its people, and our people are fantastic,” he said.

“This is to recognise that. We have had people here who are second generation, and one fellow in the same job for 52 years.”